Discharge of Contracts

Transcription

1 Discharge of Contracts Termination of contractual relationship between parties Rights and obligations created by contract come to an end Parties are freed from their obligation 10/25/17 JMM KLELC 1

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3 Discharge by Agreement Ss. 62 & Novation 2. Alteration 3. Rescission 4. Remission 5. Waiver 6. Accord & Satisfaction 10/25/17 JMM KLELC 3

4 Discharge by Agreement 1. Novation new contract for the old between same parties or different parties consideration is discharge from old contract Extinguishment of all rights and obligations under the old contract Consent of all partiers necessary Eg. Creditor agreeing to hold another person liable for the debt owed by debtor, amalgamation of companies and liability of new company, etc. Essentials a. consent of all, b. new contract shall be enforceable, c. new contract before the expiry of time of performance of original contract. 10/25/17 JMM KLELC 4

5 Alteration change in one or more of the terms of the contract with the consent of all between the parties only. Eg. Sale of cotton, alteration in date of delivery Rescission - both the parties to contract mutually agree to rescind it, original contract need not be performed. Eg. Sale of goods before delivery of goods both agree not to perform it. Remission when a promisee at his will and pleasure accepts a lesser amount than what was contracted for and discharges the obligation of another. unilateral promise to give up part of his claim. Eg. Payment of lesser sum by a barrower to a creditor. Waiver abandonment of a right which a person is entitled to - words or conduct agreement to paint a picture, one party preventing another Accord and satisfaction acceptance of something other than agreed in full satisfaction eg. Bike for loan amount 10/25/17 JMM KLELC 5

6 Discharge of Contract by Performance Time Contingent contracts Ss General Contracts Ss Joint Promises Ss Reciprocal Promises Ss for Performance Ss /25/17 JMM KLELC 6

7 Performance of contingent contracts Ss S. 31."Contingent contract" defined- A " contingent contract " is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Illustration A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent contract. Analysis A conditional contract where the occurrence or nonoccurrence of the condition is uncertain. eg,. Promise to pay on expiry of some time? or to pay after death of some one? to pay if X dies in one year? All insurance contracts? 10/25/17 JMM KLELC 7

8 Analysis Contingency shall be collateral to contract. i.e., while the contract exists its performance depends on happening or non-happening of uncertain event Contingency may depend upon will of a person. Eg. A contract, performance of which is dependent on will of a person. Eg. Speculation on marriage Contingency to be condition precedent. Eg. Sale of land subject to a condition of repurchase of the same on happening of some event? not contingent. 10/25/17 JMM KLELC 8

9 Happening of an uncertain event S.32. Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. Contract to do or no to do something on happening of some future uncertain event Enforced when such event happens When happening of event becomes impossible - void 10/25/17 JMM KLELC 9

10 Illustrations (a) A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced by law unless and until C dies in A's lifetime. (b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse. (c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void. 10/25/17 JMM KLELC 10

11 Two basic principles No enforcement unless and until event happens Contract becomes void when the happening of the event becomes impossible 10/25/17 JMM KLELC 11

12 Not happening of an uncertain event S. 33. Enforcement of contracts contingent on an event not happening.- Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before. Contract to do or not to do something on not happening of some future uncertain event Enforced when happening of that event becomes impossible and not before 10/25/17 JMM KLELC 12

13 Illustration A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. Analysis - Promisee shall wait till the happening of the vent becomes impossible of happening 10/25/17 JMM KLELC 13

14 Events linked with human conduct unspecified time S. 34.When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.- If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. Illustration A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B. 10/25/17 JMM KLELC 14

15 Happening of uncertain event linked with future human conduct over unspecified time Such future event is considered impossible if such person does any thing rendering himself impossible to so act within any definite time or otherwise than under further contingencies. 10/25/17 JMM KLELC 15

16 Contracts contingent over specified time S. 35 When contracts become void which are contingent on happening of specified event within fixed time.-contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible. When contracts may be enforced which are contingent on specified event not happening within fixed time.-contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened or, before the time fixed has expired, if it becomes certain that such event will not happen. 10/25/17 JMM KLELC 16

17 Illustrations A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, 'and becomes void if the ship is burnt within the year. A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year. 10/25/17 JMM KLELC 17

18 S. 36.Agreement contingent on impossible events void Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. Illustrations (a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void. (b) A agrees to pay B 1,000 rupees if B will marry A's daughter C. C was dead at the time of the agreement. The agreement is void. 10/25/17 JMM KLELC 18

19 Performance of Contracts Ss Illustrations (a) A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay Rs. 1,000 to A's representatives. (b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representatives or by B. S. 37.Obligation of parties to contracts.- The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance' is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract. 10/25/17 JMM KLELC 19

20 S. 38 Effect of refusal to accept offer of performance Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under the contract. Every such offer must fulfill the following conditions:- (1) it must be unconditional; (2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do (3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver. An offer to one of several joint promisees has the same legal consequences as an offer to all of them, 10/25/17 JMM KLELC 20

21 Illustration A contracts to deliver to B at his warehouse, on the 1st March, 1873, 100 bales of cotton of a particular quality. In order to make an offer of a performance with the effect stated in this section, A must bring the cotton to B's warehouse, on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there are 100 bales. 10/25/17 JMM KLELC 21

22 S.39 Effect of refusal of party to perform promise wholly Illustrations (a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A willfully absents herself from the theatre. B is at liberty to put an end to the contract. (b) On the same facts, on the sixth night A willfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night. S When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. 10/25/17 JMM KLELC 22

23 S. 40. Person by whom promise is to be performed Illustrations (a) A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so. (b) A promises to paint a picture for B. A must perform this promise personally. S If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it. 10/25/17 JMM KLELC 23

24 41.Effect of accepting performance from third person.- When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. 10/25/17 JMM KLELC 24

25 Performance of Joint Promises Ss Eng law When one of several promisors die the rights and liabilities devolve upon surviving promisors, in case of last surviving promisor it devolves on legal representatives of last surviving promisor. Indian law S. 42 Devolution of liabilities -When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfill the promise. 10/25/17 JMM KLELC 25

26 Joint promises and several liability S. 43.Any one of joint promisors may be compelled to perform.- When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors, to perform the whole of the promise. Each promisor may compel contribution. Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract. Sharing of loss by default in contribution.-if any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Explanation.-Nothing in this section shall prevent a surety from recovering from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payments made by the principal. 10/25/17 JMM KLELC 26

27 Illustrations (a) A, B and C jointly promise to pay D 3,000 rupees. D may compel either A or B or C to pay him 3,000 rupees. (b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C is compelled to pay the whole. A is insolvent, but his assets are sufficient to pay one-half of his debts. C is entitled to receive 500 rupees from A's estate, and 1,250 rupees from B. (c) A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to pay anything, and A is compelled to pay the whole. A is entitled to receive 1,500 rupees from B. (d) A, B and C are under a joint promise to pay D 3,000 rupees, A and B being only sureties for C. C fails to pay. A & B are compelled to pay the whole sum. They are entitled to recover it from C. 10/25/17 JMM KLELC 27

28 Release of joint promisors Eng law discharge of one discharges all Indian law S. 44 Effect of release of one joint promisor.- Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors ; neither does it free the joint promisors so released from responsibility to the other joint promisor or joint promisors. 10/25/17 JMM KLELC 28

29 Devolution of Rights 45.Devolution of joint rights.-when a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person, jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly. Illustration A, in consideration of 5,000 rupees, lent to him by B and C, promises B and C jointly to repay them that sum with interest on a day specified. B dies. The right to claim performance rests with B's representative jointly with C during C's life, and after the death of C with the representatives of B and C jointly. 10/25/17 JMM KLELC 29

30 Time and place for performance Ss S. 46 Time for performance of promise, when no application is to be made and no time is specified Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. Explanation.-The question "what is a reasonable time" is, in each particular case, a question of fact. 10/25/17 JMM KLELC 30

31 S. 47.Time and place for performance of promise, where time is specified and no application to be made. When promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. Illustration A promises to deliver goods at B's warehouse on the first January. On that day A brings the goods to B's warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise. 10/25/17 JMM KLELC 31

32 S. 48. Application for performance on certain day to be at proper time and place When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the, promisee to apply for performance at a proper place and within the usual hours of business. Explanation.-The question " what is a proper time and place. " is, in each particular case, a question of fact. 10/25/17 JMM KLELC 32

33 S. 49.Place for performance of promise, where no application to be made and no place fixed for performance.-when a promise is to be performed without application by the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place. Illustration A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place. 10/25/17 JMM KLELC 33

34 S. 50. Performance in manner or at time prescribed or sanctioned by promisee.-the performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions. Illustrations (a) B owes A 2,000 rupees. A desires B to pay the amount to A's account with C, a banker. B, who also banks with C, orders the amount to be transferred from his account to A's credit, and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment by B. (b) A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him upon such settlement. This amounts to a payment by A and B, respectively, of the sums which they owed to each other. (c) A owes B 2,000 rupees. B accepts some of A's goods in reduction of the debt. The delivery of goods operates as a part payment. (d) A desires B, who owes him Rs. 100, to send him a note for Rs. 100 by post. The debt is discharged as soon as B puts into the post a letter containing the note duly addressed to A. 10/25/17 JMM KLELC 34

35 Reciprocal promises S. 2(f) Promises, which form the consideration or part, of the consideration for each other are called reciprocal promises S. 51 Promisor not bound to perform, unless reciprocal promisee ready and willing to perform. When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. Illustrations (a) A and B contract that A shall deliver goods to B to be paid for by B on delivery. A need not deliver the goods, unless B is ready and willing to pay for the goods on delivery. B need not pay for the goods, unless A is ready and willing to deliver them on payment. (b) A and B contract that A shall deliver goods to B at a price to be paid by installments, the first installment to be paid on delivery. A need not deliver, unless B is ready and willing to pay the first installment on delivery. B need not pay the first installment, unless A is ready and willing to deliver the goods on payment of the first installment. 10/25/17 JMM KLELC 35

36 S. 52.Order of performance of reciprocal promises.-where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and, where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires. Illustrations (a) A and B contract that A shall build a house for B at a fixed price. A's promise to build the house must be performed before B's promise to pay for it. (b) A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A's promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock. 10/25/17 JMM KLELC 36

37 S. 53. Liability of party preventing event on which the contract is to take effect When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract. Illustration A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B ; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance. 10/25/17 JMM KLELC 37

38 S. 54.Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract. 10/25/17 JMM KLELC 38

39 Illustrations (a)a hires B's ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B's promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract. (b)a contracts with B to execute certain builder's work for a fixed price, B supplying the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by the non-performance of the contract. 10/25/17 JMM KLELC 39

40 Illustrations (c)a contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A's promise to deliver need not be performed, and B must make compensation. (d)a promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise. B's promise to pay need not be performed, and A must make compensation. 10/25/17 JMM KLELC 40

41 Essence of time for performance 55. Effect of failure to perform at fixed time, in contract in which time is essential When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. Time is of essence when a) express agreement, b) delay resulting in injury, c) nature and necessity of contract. 10/25/17 JMM KLELC 41

42 Effect of such failure when time is not essential.- If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time ; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than that agreed upon. If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the nonperformance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so. 10/25/17 JMM KLELC 42

43 Impossibility of performance and frustration S. 56 An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful.-a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the Promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Compensation for loss through non-performance of act known to be impossible or unlawful.-where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the nonperformance of the promise. 10/25/17 JMM KLELC 43

44 Illustrations (a) A agrees with B to discover treasure by magic. The agreement is void, (b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void. (c) A contracts to marry B, being already married to C, and being forbidden by the law to Which he is subject to Practice polygamy, A must make compensation to B for the loss caused to her by the non-performance of his promise. (d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared. (e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void. 10/25/17 JMM KLELC 44

45 Impossibility of performance and frustration Promise to do an act Promise to do an act Impossible ever Later becomes impossible or unlawful Agreement Void Contract becomes void 10/25/17 JMM KLELC 45

46 Frustration S. 56 incorporates the principle of frustration evolved by English courts Well established grounds of frustration 1. Destruction of subject matter when the actual and specific subject matter ceases to be in existence frustration operates. Eg. Destruction of music hall, destruction of potatoes by infection of a disease 2. Change of circumstances extremely unanticipated change of circumstances resulting in making the performance impossible in the manner and at the time agreed. 3. Non-occurrence of contemplated event value of the performance is destroyed thereby Eg. Contract to hire a room to view queen s coronation procession 10/25/17 JMM KLELC 46

47 Well established grounds of frustration 4. Death or incapacity of parties where the intention of the parties was that the person contracted alone shall perform contract to paint, sing, act, write, marry, etc. 5. Govt. or legislative intervention directly operating upon the fulfillment of contract Eg. sale of land and land acquisition, lease of land for mining, etc. 6. Intervention of war Eg. Contracts with enemy country, contract of sale of goods which are to be imported. 10/25/17 JMM KLELC 47

48 Theories of Frustration Theory of implied term intention of parties if the things were to different. Just and reasonable solution - parties have no foresight of a prophet, lawyers have no draftsmanship of Chalmers. India - S. 56 Effects of frustration 1. Frustration shall not be self induced Eg. Sale of shares by a co. to its employees and also to the employees of its subsidiary - employees of the subsidiary co. allowed to buy shares though the same is sold in auction. no frustration. 10/25/17 JMM KLELC 48

49 Effects of frustration 2. Frustration operates automatically to the extent of frustration Eg. Sale of 250 tons of barley to be grown in a land raised only 150 tons due to crop failure sold to another. Sale is valid, as the frustration operates only to the extent of failure. 3. Adjustment of rights S. 65. Obligation of person who has received advantage under void agreement or contract that becomes void.-when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it. 10/25/17 JMM KLELC 49

50 Illustrations (a) A pays B 1,000 rupees in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees. (b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them. (c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night's performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung. (d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation, to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance. 10/25/17 JMM KLELC 50

51 Discharge by Breach When a party renouncing his liability under a contract When a party by his own act making the performance impossible When a party wholly or partially fails to perform his obligations 10/25/17 JMM KLELC 51

52 Kinds of Breach failure to perform or renunciation at the time for performance Anticipatory breach Actual breach failure to perform or renunciation before the time for performance 10/25/17 JMM KLELC 52

53 Anticipatory breach An announcement by a contracting party of his intention not to fulfill the contract and that he will no longer be bound by it. Effects on anticipatory breach upon rights of parties 1. Innocent party is excused from performance or further performance 2. Anticipatory breach in case of contingent contract immediate action for damages lie. 3. Injured party shall have the right to sue for breach or wait till the time for performance arrived. 10/25/17 JMM KLELC 53

54 Consequences, when injured party opts to keep the contract alive 1. The party repudiating may again choose to perform when time for performance arrives and the promisee will be bound to accept the same. Party keeping contract alive is not freed from his obligation 2. If while the contract is lying open, some event happens which discharges the contract otherwise by repudiation, the promisor would also be entitled to the advantage of changed circumstances. Eg. Avery v. Bowden dt. agreed to load a ship with cargo within 45 days on arrival of ship dt. said he will not perform pt. waited till expiry of 45 days before expiry of 45 days war broke out Contract is discharged for frustration. contract ended by frustration not by breach. 10/25/17 JMM KLELC 54

55 3. If the anticipatory breach is accepted, damages for breach would be assessed at the time when repudiation takes place. Ramgopal v. Dhanji Jadhavji Bhatia Dts owners of ginning mill contracted with the pt a cotton merchant to use half the mills working capacity for ginning his cotton but the dts repudiated the contract before any cotton was supplied or ginned. HELD: Pt is entitled to recover the estimated loss of profits at the time of repudiation and dts are not required to buy the cotton. Where the promisee does not accept the anticipatory breach damages will be assessed at the time fixed for performance. 10/25/17 JMM KLELC 55

56 Extent of breach or repudiation Every minor irregularity is not repudiation so as to put an end to contract effect of the breach upon the contract as a whole be considered. Eg. Contract to deliver 100 bales of cotton in installments 16 th installment of delivery was below the standard buyer wanted to repudiate it was not the intention of he parties to throw the contract Supply of iron by two installments payment within 14 days of delivery delivered 1 st installment buyer claimed reduction in price seller treated it as repudiation and stopped delivery of goods no repudiation. Breach in its entirety eg. Withholding of part payment under bonafide claim Partial failure going to the root of the contract requirement 100 bags of rice supply of 50 bags of rice repudiates the contract. Aggrieved 10/25/17its party must make JMM restitution. KLELC 56

57 Remedies for breach of contract Injured party may bring an action for- damages or specific performance Specific performance is to compel the party to perform the very promise Damages is monetary compensation for the loss suffered by injured party Action for damages two basic problems: Remoteness of damage Measure of damages 10/25/17 JMM KLELC 57

58 Remoteness of damage Every breach of contract upsets many settled expectations of the injured party. He may feel the consequences in log time and in variety of ways. Eg. Contract to supply pure mustard oil innumerable consequences While the consequences are endless, there shall be an end to liability, dt, cannot be liable for all that follows from his breach There shall be limit to liability, beyond that limit the damage is said to be too remote and therefore irrecoverable. PROBLEM where to draw the line? 10/25/17 JMM KLELC 58

59 Hadley v. Baxendale Pt. carried on exclusive business as miller. Mill was stopped by breakage of a crankshaft by which the mill was worked. Dts. the firm of carriers were engaged to carry the shaft to the manufacturers as a pattern for new one. Pt told the dt that the shaft must be sent immediately. But the dts., delayed the delivery by neglect, consequently pt did not receive the shaft for several days. Action was brought for the loss of profits. HELD: Dts were not liable for loss of profits, because in great multitude of millers sending off broken shafts for repair, it does not follow in ordinary circumstances that the mill is stopped. The mill was out of action for want of shaft was a special circumstance affecting pt s mill and the same should have been pointed out to the dts in clear terms. 10/25/17 JMM KLELC 59

60 Rule in Hadley v. Baxendale Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may reasonably and fairly be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself or such as may reasonably supposed to have in the contemplation of both parties at the time they made the contract, as the probable result of breach of it. The decision lays down two kinds of damages- General damages loss arising naturally in the usual course of thins. Special damages - possibility of special loss be in the contemplation of parties. 10/25/17 JMM KLELC 60

61 Some examples Contract to supply shoe at an exceptionally good rate delayed supply fair gets over shoes sold at half the rate Special loss not recoverable. Knowledge of special circumstances eg. Contract with a carrier to take the goods to exhibition cum sale Loss as is foreseeable as a result of breach is recoverable, foreseeability depends on knowledge. Every one as a reasonable man is presumed to know the ordinary course of things and to know what loss is likely to result from breach of the contract from that ordinary course. 10/25/17 JMM KLELC 61

62 Position in India S. 73 Compensation for loss or damage caused by breach of contract.- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. 10/25/17 JMM KLELC 62

63 Explanation.-In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused-by the nonperformance of the contract must be taken into account. 10/25/17 JMM KLELC 63

64 Measure of damages Fundamental principles 1. Damages are compensatory and not penal. 2. Damages for inconvenience caused by breach. Ø Eg., Couple facing trouble by the delayed train. 3. Loss caused as a result of misrepresentation. 4. Nominal damages eg. Sale of land 5. Mental pain and suffering ordinarily no but special case may permit eg. Bank agreeing to loan pt for his trip to California, photographer s failure to appear in wedding, cancellation of wedding hall, 6. Breach of confidence 7. Duty to mitigate eg. Sale of perishable goods and default by buyer. 10/25/17 JMM KLELC 64

65 Liquidated damages and penalty Parties to a contract may determine before hand the amount of compensation payable in the event of breach. Sum so fixed may be liquidated damages or penalty. If the sum so fixed is genuine pre-estimate of the probable damage that is likely to result from the breach, it is liquidated damages and the whole of it is recoverable. Dunlop pneumatic tyre Co., Ltd v. New garage motor co., Ltd. a manufacturer of tyre supplied a quantity of tyres to a dealer on the condition that they should not be sold below the list price. Liquidated damages and not penalty of $5 would be payable for every tyre sold in breach of the agreement. Dealer committed breach. Whether sum fixed was intended as genuine compensation for the loss suffered? 10/25/17 JMM KLELC 65

66 HLs held: liquidated damages Propositions Lord Dunedin 1. Expression used by the parties is not conclusive. Court shall find out whether the payment stipulated is in truth penalty or liquidated damages. 2. Essence of penalty is a payment of money stipulated in terrorem of the offending party, while essence of liquidated damages is a genuine pre-estimation of damage. 3. Whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstance of each contract. 10/25/17 JMM KLELC 66

67 Tests 1. If the sum stipulated is extravagant and unreasonable than the greatest loss that could have been followed from the breach, it would be a penalty 2. When the breach consists of non-payment of money and the sum stipulated is a sum greater than the sum which ought to have been paid, it would be a penalty. 3. When a payment of single sum is stipulated on the occurrence of one or more or all of several events, it would be a penalty. Nature/validity of Liquidated damages If the sum fixed by the parties is found to be liquidated damages, the whole of it is recoverable, but if its viewed as penalty, it is rejected and not recoverable. Damages recoverable will then be calculated according to the ordinary principles. 10/25/17 JMM KLELC 67

68 Ford Motor Co. v. Armstrong Dt a retailer, received from the pts supplies of cars and parts and agreed not to sell any item below the list price. A sum $250 was payable for every breach as agreed damages. On the breach and action to recover the agreed damages CA held that the sum fixed was a penalty as it might happen that a part sold in breach was of lesser value than the damages payable. 10/25/17 JMM KLELC 68

69 Position in India S. 74 Compensation for breach of contract where penalty stipulated for. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty 10/25/17 JMM KLELC 69

70 Exception.-When any person enters into any bail-bond, recogni- zance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the 1*[Central Government] or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation.-A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested. 10/25/17 JMM KLELC 70

71 Illustrations (a)a contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B is entitled to (recover from A such compensation, not exceeding Rs. 1,000, as the Court considers reasonable. (b)a contracts with B that, if A practises as a surgeon within Calcutta, he will pay B Rs. 5,000. A practises as a surgeon in Calcutta. B is entitled to such compensation, not exceeding Rs. 5,000, as the Court considers reasonable. 10/25/17 JMM KLELC 71